SEC News Digest

Enforcement Proceedings

In the Matter of Sanctuary Woods Multimedia Corp.

An Administrative Law Judge has issued an Order Making Findings and Revoking Registrations by Default (Default Order) in Sanctuary Woods Multimedia Corp., Admin. Proc. No. 3-14406. The Order Instituting Proceedings alleged that Respondents repeatedly failed to file required annual and quarterly reports while their securities were registered with the Securities and Exchange Commission. The Default Order finds these allegations to be true and revokes the registrations of each class of registered securities of Sanctuary Woods Multimedia Corp., Satellite Auction Network, Inc. (a/k/a L International Computers, Inc.), Scientific Measurement Systems, Inc., Scorpion Technologies, Inc., Scott Science & Technology, Inc., Security Environmental Systems, Inc., and Sensotron, Inc., pursuant to Section 12(j) of the Securities Exchange Act of 1934. (Rel. 34-64827; File No. 3-14406)

Commission Revokes Registration of Securities of Independence Brewing Co. for Failure to Make Required Periodic Filings

On July 7, 2011, the Commission revoked the registration of each class of registered securities of Independence Brewing Co. (IBCO) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, IBCO consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Independence Brewing Co. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of IBCO’s securities pursuant to Section 12(j) of the Exchange Act. This Order settled the charges brought against IBCO in In the Matter of Dawn Technologies, Inc., et al., Administrative Proceeding File No. 3-14422.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

Commission Revokes Registration of Securities of Flooring America, Inc. for Failure to Make Required Periodic Filings

On July 7, 2011, the Commission revoked the registration of each class of registered securities of Flooring America, Inc. (FRAE) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, FRAE consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Flooring America, Inc. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of FRAE’s securities pursuant to Section 12(j) of the Exchange Act. This Order settled the charges brought against FRAE in In the Matter of BP International, Inc., et al., Administrative Proceeding File No. 3-14427.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

Commission Revokes Registration of Securities of Diversified Realty, Inc. for Failure to Make Required Periodic Filings

On July 7, 2011, the Commission revoked the registration of each class of registered securities of Diversified Realty, Inc. (Diversified Realty) for failure to make required periodic filings with the Commission.

Without admitting or denying the findings in the Order, except as to jurisdiction, which it admitted, Diversified Realty consented to the entry of an Order Making Findings and Revoking Registration of Securities Pursuant to Section 12(j) of the Securities Exchange Act of 1934 as to Diversified Realty, Inc. finding that it had failed to comply with Section 13(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1 and 13a-13 thereunder and revoking the registration of each class of Diversified Realty’s securities pursuant to Section 12(j) of the Exchange Act. This Order settled the proceedings brought against Diversified Realty in In the Matter of Delcott Commodity Partners, et al., Administrative Proceeding File No. 3-14405.

Brokers and dealers should be alert to the fact that Exchange Act Section 12(j) provides, in pertinent part, as follows:

No member of a national securities exchange, broker, or dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce the purchase or sale of, any security the registration of which has been and is suspended or revoked . . . .

In the Matter of James L. Hertz

On July 7, 2011, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Sections 15(b) and 15B(c) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions against James L. Hertz, a former J.P. Morgan Securities Inc. vice-president and marketer.

Hertz consented to a Commission Order barring him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of penny stock. This sanction was based upon Hertz’s December 6, 2010 guilty plea to a criminal information, filed in U.S. v Hertz, Crim. No.: 10-cr-1178, that charged him with two counts of conspiracy and one count of wire fraud for engaging in misconduct in connection with the competitive bidding process for municipal reinvestment products. The Commission recognizes Hertz’s cooperation in the SEC’s investigation as well as investigations conducted by other law enforcement agencies.

In a related enforcement action, the SEC filed today a complaint in the United States District Court for the District of New Jersey against J.P. Morgan Securities LLC (JPMS), alleging that, from 1997 through 2005, JPMS engaged in fraudulent practices in connection with the bids for municipal reinvestment products. The fraudulent practices, misrepresentations and omissions undermined the competitive bidding process, affected the prices that municipalities paid for the reinvestment products being bid, and deprived certain municipalities of a conclusive presumption that the reinvestment interest had been purchased at fair market value. JPMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted. Without admitting or denying the allegations, JPMS has consented, subject to court approval, to the entry of a final judgment enjoining it from future violations of Section 15(c)(1)(A) of the Securities Exchange Act of 1934 and ordering it to pay disgorgement, prejudgment interest and a civil penalty, totaling $51,186,349.

The SEC thanks the Antitrust Division of the Department of Justice and the Federal Bureau of Investigation for their cooperation and assistance in this matter. (Rel. 34-64831; File No. 3-14455)

Court Enters Final Judgment By Consent Against Former Officer of Navigators International Management Co., Ltd.

On July 5, 2011, the Honorable Nancy F. Atlas of the United States District Court for the Southern District of Texas entered a final judgment in a civil action against Benjamin R. Young that (i) enjoins him from violating Sections 5 and 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and (ii) finds him liable for payment of $30,000 under Securities Act Section 20(d) and Exchange Act Section 21(d)(3). Young consented to entry of the judgment and did not admit or deny the allegations in the complaint.

According to the Commission's complaint, Young and codefendant James R. Spurger, former officers of Navigators International Management Co., Ltd., a Bahamian Corporation, solicited investors to participate in an unregistered and fraudulent bond funding program. The complaint alleged that investors were promised returns of 67% or more and were assured that their principal was safe and collateralized. The complaint further alleged that investors' funds were not safe and collateralized and that none of the investors received a return of principal or payment of the promised profits.

Earlier, on March 28, 2011, the Court entered final judgments against Spurger and Navigators International Management Co., Ltd. enjoining them from violating Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and (ii) finding them liable for payment of $25,000 and $45,000, respectively, under Securities Act Section 20(d) and Exchange Act Section 21(d)(3). Spurger and the corporation consented to entry of the judgments and did not admit or deny the allegations in the complaint. [SEC v. Navigators International Management Co., Ltd., James R. Spurger and Benjamin W. Young, Jr., Case No.07-cv-04518 (S.D. Tex.)] (LR-22028)

The Securities and Exchange Commission announced on July 5, 2011, that the United States District Court for the District of Massachusetts, upon motion by the Commission, entered an amended final judgment against the defendants Carl E. Binette and Peter E. Talbot finding them jointly and severally liable for a $615,000 disgorgement, plus prejudgment interest of $76,235.28, for a total payment of $691,235.28, and ordering Binette and Talbot to each pay a $1,845,000 civil money penalty.

On July 13, 2009, the Commission filed a civil injunctive complaint alleging Binette’s and Talbot’s insider trading in Safeco Corp. securities violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Binette and Talbot each consented to the entry of a judgment without admitting or denying the allegations in the Commission’s complaint. Among other things, the judgments enjoined Binette and Talbot, respectively, from committing or aiding and abetting future violations of the above securities law provisions.

On Oct. 14, 2010, the United States Attorney’s office for the District of Massachusetts announced that Binette and Talbot were charged in a seven-count indictment with conspiracy and securities fraud related to their insider trading in Safeco. Binette was also charged with obstruction of justice for making false statements to the Commission during its attempts to investigate that scheme. U.S. v. Talbot et al., Criminal Action No. 3:10-cr-30036-MAP (D. Mass.) (Ponser, J.). [SEC v. Carl E. Binette and Peter E. Talbot, Case No. 3:09-cv-30107-MAP (D. Mass.)] (LR-22029)

SEC Charges New York Brokerage Firm and Two Executives with Defrauding Investors in Private Placement

The SEC alleges that Windham Securities, Inc., Windham’s owner and principal Joshua Constantin, and former Windham managing director Brian Solomon fraudulently induced investors to provide more than $1.25 million to Windham for securities investments and fees by making false claims concerning the intended use of investor funds as well as Windham’s investment expertise and historical returns. Instead of purchasing securities for investors as represented, the defendants misappropriated the investors’ funds and then provided false assurances to investors to cover up their fraud.

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, charges Windham, Constantin, and Solomon with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and charges Constantin with liability as a control person for Windham’s Exchange Act violations and as an aider and abettor of Windham’s and Solomon’s Exchange Act violations. In its complaint, the SEC also names Constantin Resource Group, Inc. (CRG) and Domestic Applications Corp. (DAC) as relief defendants. The SEC’s complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and penalties against Windham, Constantin, and Solomon, and disgorgement of ill-gotten gains plus prejudgment interest against CRG and DAC as relief defendants. The SEC’s investigation is continuing. [SEC v. Joshua Constantin et al., United States District Court for the Southern District of New York, Civ. Action No. 11-CV-4642] (LR-22030)

To settle the SEC’s fraud charges, JPMS agreed to pay approximately $51.2 million that will be returned to the affected municipalities or conduit borrowers. JPMS and its affiliates also agreed to pay $177 million to settle parallel charges brought by other federal and state authorities.

Typically, when investors purchase municipal securities, the municipalities temporarily invest the proceeds of the sales in municipal reinvestment products until the money is used for the intended purposes. Under relevant Internal Revenue Service (IRS) regulations, the proceeds of tax-exempt municipal securities generally must be invested at fair market value. The most common way of establishing fair market value is through a competitive bidding process in which bidding agents search for the appropriate investment vehicle for a municipality.

The SEC alleges that from 1997 through 2005, JPMS’s fraudulent practices, misrepresentations and omissions undermined the competitive bidding process, affected the prices that municipalities paid for reinvestment products, and deprived certain municipalities of a conclusive presumption that the reinvestment instruments had been purchased at fair market value. JPMS’s fraudulent conduct also jeopardized the tax-exempt status of billions of dollars in municipal securities because the supposed competitive bidding process that establishes the fair market value of the investment was corrupted. The employees involved in the alleged misconduct are no longer with the company.

According to the SEC’s complaint filed in U.S. District Court for the District of New Jersey, JPMS, acting as the agent for its affiliated commercial bank, JPMorgan Chase Bank, N.A., at times won bids because it obtained information from the bidding agents about competing bids, a practice known as “last looks.” In other instances, it won bids set up in advance for JPMS to win (set-ups) because the bidding agent deliberately obtained non-winning bids from other providers, and it facilitated bids rigged for others to win by deliberately submitting non-winning bids.

Without admitting or denying the allegations in the SEC’s complaint, JPMS has consented to the entry of a final judgment enjoining it from future violations of Section 15(c)(1)(A) of the Securities Exchange Act of 1934 and has agreed to pay a penalty of $32.5 million and disgorgement of $11,065,969 with prejudgment interest of $7,620,380. The settlement is subject to court approval.

In a related enforcement action, the SEC barred former JPMS vice president and marketer James L. Hertz from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any penny stock offering. This sanction is based on Hertz’s December 6, 2010 guilty plea to two counts of conspiracy and one count of wire fraud for engaging in misconduct in connection with the competitive bidding process involving the investment of proceeds of tax-exempt municipal bonds. The Commission recognizes Hertz’s cooperation in the SEC’s investigation and investigations conducted by other law enforcement agencies

This is the SEC’s third settlement with a financial institution stemming from its ongoing investigation into corruption in the municipal reinvestment industry. On December 7, 2010, the SEC charged Banc of America Securities LLC (BAS) with securities fraud for similar conduct. BAS agreed to pay more than $36 million in disgorgement and interest to settle the SEC’s charges, and paid an additional $101 million to other federal and state authorities for its misconduct. On May 4, 2011, the SEC charged UBS Financial Services Inc. (UBS) with securities fraud for fraudulently rigging bids as both a provider and a bidding agent. UBS agreed to pay $47.2 million in disgorgement, interest and civil penalties to settle the SEC’s charges and to pay $113 million to other federal and state authorities in connection with their parallel cases.

Deputy Chief Mark R. Zehner and Assistant Municipal Securities Counsel Denise D. Colliers, who are members of the Municipal Securities and Public Pensions Unit in the Philadelphia Regional Office, conducted the SEC’s investigation into this matter.

The SEC thanks the Antitrust Division of the Department of Justice and the Federal Bureau of Investigation for their cooperation and assistance in this matter. The SEC is bringing this enforcement action in coordination with the Department of Justice, the IRS, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and 25 State Attorneys General.

Investment Company Act Releases

WNC Tax Credits 40, LLC, et al.

A notice has been issued giving interested persons until Aug. 1, 2011, to request a hearing on an application filed by WNC Tax Credits 40, LLC, WNC Tax Credits 41, LLC, WNC Housing Tax Credits Manager 2, LLC, WNC National Partners, LLC and WNC & Associates, Inc. for an order under Sections 6(c) and 6(e) of the Investment Company Act granting relief from all provisions of the Act, except Sections 37 through 53 of the Act and the rules and regulations under those sections other than Rule 38a-1. (Rel. IC-29715 – July 6)

Allianz Life Insurance Company of North America, et al.

An order has been issued pursuant to Sections 26(c) and 17(b) of the Investment Company Act, as amended on an application filed by Allianz Life Insurance Company of North America (Allianz Life) and Allianz Life Insurance Company of New York (Allianz NY) (together the Insurance Company Applicants); their respective separate accounts Allianz Life Variable Account A (Allianz Account A), Allianz Life Variable Account B (Allianz Account B), and Allianz Life of NY Variable Account C (Allianz Account C) (collectively with the Insurance Company Applicants, the Applicants); and PIMCO Equity Series VIT (collectively with the Applicants, the Section 17 Applicants). The order permits the Applicants to substitute the securities of the PIMCO EqS Pathfinder Portfolio for the securities of the Mutual Global Discovery Securities Fund (the Substitution) held by Allianz Account A, Allianz Account B, or Allianz Account C to support certain individual variable annuity contracts and variable life insurance contracts issued by Allianz Life and Allianz NY. The order also exempts the Section 17 Applicants from Section 17(a) of the Act to the extent necessary to permit them to engage in certain in-kind transactions in connection with the Substitution. (Rel. IC-29716 – July 6)

Standards Setting Boards

Proposed Rule Changes

The Commission issued a notice to solicit comments on proposed rules (PCAOB-2011-01), submitted by the Public Company Accounting Oversight Board pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, for an interim inspection program related to audits of brokers and dealers. (Rel. 34-64814)

The Commission issued a notice to solicit comments on proposed rules (PCAOB-2011-02), submitted by the Public Company Accounting Oversight Board pursuant to Rule 19b-4 under the Securities Exchange Act of 1934, relating to the funding of the PCAOB’s operations. (Rel. 34-64816)

Self-Regulatory Organizations

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by NYSE Arca amending the NYSE Arca Equities Schedule of Fees and Charges for Exchange Services to introduce two new pricing tiers, Step-Up Tier 1 and Step-Up Tier 2 (SR-NYSEArca-2011-41) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of July 11. (Rel. 34-64820)

A proposed rule change filed by the NASDAQ Stock Market relating to routing priority (SR-NASDAQ-2011-088) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of July 11. (Rel. 34-64821)

A proposed rule change filed by NASDAQ OMX PHLX relating to routing priority (SR-Phlx-2011-91) has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of July 11. (Rel. 34-64822)

A proposed rule change filed by NYSE Arca correcting the numbering of a recently adopted NYSE Arca Equities rule (SR-NYSEArca-2011-42) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of July 11. (Rel. 34-64823)

A proposed rule change (SR-CBOE-2011-063) filed by the Chicago Board Options Exchange relating to PULSe fees has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of July 11. (Rel. 34-64824)

A proposed rule change (SR-C2-2010-014) filed by the C2 Options Exchange relating to PULSe Fees has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of July 11. (Rel. 34-64825)

A proposed rule change filed by the NASDAQ Stock Market regarding expansion of the short term option series program (SR-NASDAQ-2011-090) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of July 11. (Rel. 34-64826)

Approving Proposed Rule Change

The Commission approved a proposed rule change (SR-ISE-2011-30) submitted by International Securities Exchange pursuant to Rule 19b-4 under the Securities Exchange Act of 1934 that allows complex orders to be entered in the Price Improvement Mechanism. Publication is expected in the Federal Register during the week of July 11. (Rel. 34-64805)

Joint Industry Plans

Notice of Filing and Immediate Effectiveness of Proposed Amendment to the Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information

The Options Price Reporting Authority filed a notice of filing and immediate effectiveness of a proposed amendment pursuant to Section 11A of the Securities Exchange Act of 1934 and Rule 608 thereunder (SR-OPRA-2011-02) to amend the Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information to adopt a New Hosted Solution Fee and other changes to the Fee Schedule. Publication is expected in the Federal Register during the week of July 11. (Rel. 34-64819)

Securities Act Registrations

The following registration statements have been filed with the SEC under the Securities Act of 1933. The reported information appears as follows: Form, Name, Address and Phone Number (if available) of the issuer of the security; Title and the number and/or face amount of the securities being offered; Name of the managing underwriter or depositor (if applicable); File number and date filed; Assigned Branch; and a designation if the statement is a New Issue.

Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics

5.06

Change in Shell Company Status

6.01

ABS Informational and Computational Material.

6.02

Change of Servicer or Trustee.

6.03

Change in Credit Enhancement or Other External Support.

6.04

Failure to Make a Required Distribution.

6.05

Securities Act Updating Disclosure.

7.01

Regulation FD Disclosure

8.01

Other Events

9.01

Financial Statements and Exhibits

8-K reports may be viewed in person in the Commission's Public Reference Branch at 100 F Street, N.E., Washington, D.C. To obtain paper copies, please refer to information on the Commission's Web site at http://www.sec.gov/answers/publicdocs.htm. In most cases, you can view and download this information by using the search function located at http://www.sec.gov/edgar/searchedgar/companysearch.html.